CORRECTED-SEC shares expertise with FBI on algorithmic trading

Tue Mar 5, 2013 7:35pm EST

(Corrects year unit was launched to 2012 in 3rd paragraph)

By Sarah N. Lynch

WASHINGTON, March 5 (Reuters) - Examiners at the U.S. Securities and Exchange Commission who specialize in computerized trading strategies have started sharing their expertise with the Federal Bureau of Investigation.

In recent months, representatives from the FBI as well as other regulatory agencies have met with members of the SEC's Quantitative Analytics unit, an SEC spokesman said.

Launched in 2012, the Quantitative Analytics unit is housed within the SEC's Office of Compliance, Inspections and Examinations.

It is staffed by computer trading experts and math gurus who help gather data, identify risks and target examinations of investment advisers for hedge funds and other firms.

"Our Quantitative Analytics Unit consists of specialized examiners with PhDs and extensive backgrounds in mathematics, physics, and computer science," SEC spokesman Kevin Callahan said.

"They play a key role in examinations of the most sophisticated algorithmic trading firms and other investment advisers. The unit shares its expertise in this area with other regulatory agencies and participates in conferences to increase the dialogue with financial firms and other regulators."

An FBI spokesperson did not respond to requests for comment.

The SEC has been stepping up its scrutiny of algorithmic trading in recent years, especially after the May 6, 2010 "flash crash" when the Dow plunged 700 points in mere minutes before it sharply recouped most losses.

In September 2011, Reuters first reported that SEC examiners were asking high-frequency trading firms to hand over details of their trading strategies as part of its authority to examine financial firms for compliance with U.S. regulations.

The requests were not necessarily related to suspicions of wrongdoing, but any major concerns can be referred to the SEC's enforcement division for investigation - especially if certain trading programs are being used to manipulate the markets.

The SEC's increasing focus on learning the ins-and-outs of computer-driven trading strategies can also help inform policymaking on market structure, another area the SEC is actively exploring.

The SEC's recent information-sharing meetings with the FBI and others on algorithmic trading by advisers was reported earlier on Tuesday by the Financial Times.

This is not the first time the SEC has sought to beef up its collaboration with the FBI. For the past couple years, a unit within the SEC's enforcement division that handles all incoming tips, complaints and referrals has had a resident FBI agent. (Reporting By Sarah N. Lynch; additional reporting by Emily Flitter in New York.)

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